JPMorgan jobs have filed a $162.2 million lawsuit against Tesla, accusing Elon Musk's electric vehicle company of "flagrantly" breaching a 2014 contract relating to stock trading options that Tesla sold to the bank.
The options, also known as warrants, give the holder the right to purchase a company's stock at a predetermined "strike" price and date. The suit, filed in federal court in Manhattan, is about how JPMorgan repriced its Tesla jobs warrants in response to Musk's infamous 2018 tweet that he was considering taking the carmaker private.
It is unusual for a major Wall Street bank to sue such a high-profile client. However, JPMorgan has done relatively little business with Tesla over the last seven years, according to Tesla filings and Refinitiv data. “We have provided Tesla multiple opportunities to fulfill its contractual obligations, so, unfortunately, they have forced this issue into litigation,” a spokesperson for JPMorgan said in a statement.
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Requests for comment were not returned by Tesla. According to the terms of the options agreement, if Tesla's share price were at or above the strike price of $560 on the day the warrants expired in June and July 2021, it would owe JPMorgan the difference between the share price on that date and $560.
Given that Tesla's stock was worth more than $600 by June of this year, JPMorgan stood to profit handsomely. However, it seeks an additional $162 million because it claims the warrants included standard provisions that allowed it to lower the strike price to protect itself from the economic effects of "significant corporate jobs transactions involving Tesla."
The bank claims that Musk's tweet on August 7, 2018, indicating that he might take Tesla private for $420 per share – at the time, the shares were worth $341.99 – was a watershed moment. With a buyout price of $420, JPMorgan would be unable to reach its strike price of $568 and thus lose money. As a result, JPMorgan reduced the strike price, increasing the possibility of profit.
According to JPMorgan's complaint, Tesla breached its contract by failing to deliver the agreed-upon amount of stock or cash. Tesla's failure to do so, according to the bank, amounted to a default. “Though JPMorgan’s adjustments were appropriate and contractually required,” the bank’s complaint said, “Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full.”
JPMorgan said Tesla had replied that the bank’s adjustments to the strike price were “an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock.” But Tesla did not challenge the underlying calculations, JPMorgan said.
